FBR Capital reiterated an Outperform rating and $5.50 price target on AMD (NYSE: AMD) following solid Q2 results and "spectacular" 3Q13 guidance of 22% revenue growth sequentially. Before bulls began to party on the strong results, however, the company offered gross margin guidance for 3Q13 of 36%, down 300 bps QOQ, and initial console APU operating margins of low double digits. FBR and others on the Street have been modeling operating margins in the high 20%s.

"While we do consider this a net negative, after much thought, we are beginning to understand," analyst Christopher Rolland comments. "Over a very long lifecycle (game consoles have historically lasted eight or more years), there are numerous opportunities to reduce manufacturing and operating support costs, thus boosting margins over time. Therefore, while we would have liked to see gross margins in the 40%s and operating margins in the high 20%s from the "get-go," we understand the initial economics."

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